BSP Eases Rules, Offers Incentives to Foster Islamic Finance Market

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is easing some regulatory requirements and offering temporary incentives to help build a market for Islamic financial instruments, as it seeks to expand Shari’ah-compliant banking in the country. The central bank is seeking comments from supervised financial institutions on a draft circular that will establish rules for sukuk transactions, or Islamic bonds. READ: Can Amenah Pangandaman continue reforms in PH’s sole Islamic bank? The proposal will implement provisions of the Islamic Banking Law and streamline the requirement for prior Monetary Board approval of sukuk transactions covered by rules issued by the Securities and Exchange Commission. Under the proposed rules, Islamic banks, Islamic banking units and conventional banks could originate or issue sukuk to raise funds or support their operations without securing prior BSP approval, as long as the transactions meet the regulators’ prudential requirements. Sukuk offerings that qualify as additional regulatory capital, however, will still require prior approval from the Monetary Board. Banks will have five banking days after an offering to notify the BSP and submit documents showing the transaction complies with applicable rules. The central bank is also proposing temporary incentives to encourage both the issuance of sukuk and investment in the instruments. These include an additional 15-percent single borrower’s limit for banks investing in sukuk-related exposures and a zero reserve requirement for sukuk issuances during the market’s early stages. READ: SEC launches Sukuk framework The measures are intended to ease funding and issuance constraints, expand banks’ financing capacity and encourage broader participation in what remains a nascent market, the BSP says. The draft rules will also allow qualified financial institutions or investment banks affiliated with a bank issuing or originating sukuk to underwrite, arrange or manage the book-building and issuance process. Banks will have to fully disclose such affiliations to investors and put controls in place to address potential conflicts of interest. The issuing or originating bank, however, will be barred from investing in or holding its own sukuk and from acting as a market maker. INQ